1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
exchange Act of 1934 for the quarterly period ended March 31, 1997
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for thr transition period from to .
Commission file No. 0-18476
AMRION, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-1050628
State or other jurisdiction (IRS Employer ID No.)
of incorporation or organization)
6565 Odell Place, Boulder, CO 80301
(Address of principal executive offices) (Zip Code)
303-530-2525
(Telephone Number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Common stock, par value $.0011 per share: 5,251,514 shares outstanding as of
March 31, 1997.
<PAGE>
PART 1. FINANCIAL
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
Assets
<S> <C> <C>
Current:
Cash and cash equivalents $ 419,474 $ 2,277,469
Accounts receivable, less allowance
of $26,000 and $28,000
for possible losses 2,158,140 1,991,772
Inventories 11,164,347 7,727,315
Mail supplies 1,176,784 893,268
Deferred promotional mailing costs, net 1,365,028 1,375,625
Other 932,842 811,997
Total current assets 17,216,615 15,077,446
Property and equipment, net 6,981,397 5,272,940
Other assets:
Marketable securities available for sale 6,346,183 6,895,214
Mailing lists, net 2,849,280 2,876,748
Intangible assets, net 85,763 92,917
Total other assets 9,281,226 9,864,879
Total assets $33,479,238 $30,215,265
</TABLE>
See accompanying notes to the consolidated financial statements
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
March 31, December 31,
1997 1996
(Unaudited) (Audited)
Liabilities and Stockholders' Equity
<S> <C> <C>
Current:
Accounts payable $ 5,382,296 $ 3,093,739
Accrued liabilities 1,707,584 1,223,758
Income taxes payable 810,000 -
Total current liabilities 7,899,880 4,317,497
Deferred income taxes 280,000 280,000
Total liabilities 8,179,880 4,597,497
Minority interest 33,889 41,973
Stockholders' equity:
Common stock, $.0011 par value - shares
authorized, 10,000,000; issued 5,251,514
and 5,326,814 5,777 5,860
Additional paid-in capital 11,209,029 13,176,747
Retained earnings 14,244,474 12,610,602
Marketable securities valuation
allowance (193,811) (217,414)
Total stockholders' equity 25,265,469 25,575,795
$33,479,238 $30,215,265
See accompanying notes to the consolidated financial statements
</TABLE>
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
Three months
ended
March 31,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $18,356,744 $13,381,956
Costs of sales:
Cost of products 7,682,688 5,939,529
Cost of mailings 3,441,433 2,883,308
Cost of sales 11,124,121 8,822,837
Gross profit 7,232,623 4,559,119
Operating expenses - selling, general
and administration 4,870,416 3,384,418
Income from operations 2,362,207 1,174,701
Other income, net 91,665 159,138
Income before taxes on income 2,453,872 1,333,839
Taxes on income 820,000 410,749
Net income $ 1,633,872 $ 923,090
Net income per common and common
equivalent share $ .30 $ .18
Weighted average number of common shares
and common shares equivalents outstanding 5,392,115 5,204,489
See accompanying notes to the consolidated financial statements
</TABLE>
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
Three months
ended
March 31,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net income $1,633,872 $ 923,090
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 466,713 299,793
Provision for losses on accounts receivable (2,000)
Minority interest share in loss of subsidiary (8,084)
Changes in operating assets and liabilities:
Accounts receivable (164,368) (71,464)
Inventories (3,437,032) (2,922,440)
Mailing supplies (283,516) 167,342
Deferred promotional mailing costs 10,597 456,814
Other assets (120,845) (31,139)
Accounts payable 2,288,557 1,364,175
Accrued liabilities 483,825 17,390
Income taxes payable 810,000 237,857
Cash provided by operating activities 1,677,719 441,418
Cash flows from investing activities:
Proceeds of marketable securities
available for sale 572,634 191,313
Purchase of property and equipment (1,946,312) (217,589)
Purchase of mailing lists and intangible assets (194,235) (341,976)
Cash used in investing activities (1,567,913) (368,252)
Cash flows from financing activities:
Proceeds from issuance of common stock - net 229,595 53,025
Purchase of company stock (2,187,396) -
Cash used by financing activities (1,967,801) 53,025
Net increase in cash and cash
equivalents (1,857,995) 126,191
Cash and cash equivalents,at beginning of period 2,277,469 831,544
Cash and cash equivalents,at end of period $ 419,474 $ 957,735
See accompanying notes to the consolidated financial statements
</TABLE>
<PAGE>
AMRION, INC. AND SUBSIDIARY
Summary of Accounting Policies
Organization and Business
The consolidated financial statements include the accounts of Amrion, Inc.
(Amrion) and those of its 94% owned subsidiary, Natrix International, LLC
(Natrix), a Colorado Limited Liability Corporation (collectively the
Company). Amrion markets nutritional supplements principally throughout
the United States, with the balance to customers in the Far East, Europe and
Mexico, using a combination of direct mail, telemarketing and print
advertising. Natrix is engaged in the marketing and distribution of proprietary
herbal based health maintenance products to food and drug chains and discount
mass merchandisers. The Companys primary products are Coenzyme Q10,
Bilberry and Gingko Biloba which comprised 39% of the Companys net sales
for the quarter ended March 31,1997.
Principles of Consolidation
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Concentrations of Credit Risk
The Companys financial instruments exposed to concentrations of credit risk
consist primarily of accounts receivable, cash equivalents and marketable
securities.
Concentrations of credit risk with respect to such accounts receivable are
limited due to the large number of customers, generally short payment terms,
and customer dispersion across geographic areas.
The Companys cash equivalents are high quality money market accounts placed
with major financial institutions. Marketable securities consist primarily of
preferred stock and AAA rated tax-exempt municipal bonds. The investment
policy limits the Companys exposure to concentrations of credit risk.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined using
the standard cost method, which approximates the weighted average cost method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based on the estimated useful lives of related assets,
generally 3 to 31.5 years. Maintenance and repair costs are expensedas incurred.
<PAGE>
Marketable Securities
The Company accounts for marketable securities in accordance with Statement of
Financial Accounting Standards No.115 (SFAS), Accounting for Certain
Investments in Debt and Equity Securities. All marketable equity and debt
securities have been categorized as available for sale as the Company does
not have the positive intent to hold to maturity or does not intend to trade
actively. These securities are stated at fair value with unrealized
gains and losses included as a component of stockholders equity until realized.
Advertising
The Company expenses the production costs of advertising the first time the
advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefits.
Direct response advertising consists primarily of direct mail advertising,
including deferred promotional mailing costs, of the Companys products.
The capitalized costs of mailed promotional materials are amortized over the
expected promotional benefit period of three months.
Income Taxes
The Company accounts for income taxes in accordance with SFAS N. 109,
Accounting for Income Taxes which requires the use of the liability
method. Accordingly, deferred tax liabilities and assets are determined
based on the temporary differences between the financial statements and
tax bases of assets and liabilities, using enacted tax rates in effect for the
year in which the differences are expected to reverse.
Intangible Assets
Purchased mailing lists, trademarks and copyrights are amortized by the
straight-line method over their estimated useful lives which range from five to
ten years. On an ongoing basis the Company reviews the recoverability and
amortization periods of intangible assets taking into consideration any
events or circumstances which could impair the assets carrying value and
records adjustments when necessary.
Income Per Common and Common Share Equivalent
Income per common and common share equivalent is based on the weighted
average number of common shares outstanding during each of the periods
presented. Options to purchase stock are included as common share
equivalents when dilutive.
<PAGE>
Cash Equivalents
The Company considers cash and all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from thr estimates.
Revenue Recognition
Revenue is recognized upon shipments of goods to the customer.
Stock Option Plans
The Company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for all stock option plans.
Under APB Opinion 25, no compensation cost has been recognized for stock
options issued to employees as the exercise price of the companys stock
options granted equals or exceeds the market price of the underlying common
stock on the date of the grant.
SFAS No. 123,Accounting for Stock-Based Compensation, requires the Company to
provide pro forma information regarding net income as if compensation cost
for the Companys stock option plans had been determined in accordance
with the fair value based method prescribed in SFAS No. 123.
Reclassifications
Certain items included in prior years financial statements have been
reclassified to conform to current year presentation.
New Accounting Pronouncements
On March 3, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 Earnings Per Share
(SFAS No. 128). This pronouncement provides a different method of
calculating earnings per share than is currently used in accordance with
Accounting Board Opinion (APB) No. 15, Earnings Per Share. SFAS 128 provides
for the calculation of Basic and Diluted earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to fully diluted earnings per share. The Company will adopt SFAS
No. 128 in 1997 and its implementation is not expected to have a material
effect on the consolidated financial statements.
<PAGE>
PART I FINANCIAL
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operationsfor the Period from January 1, 1997,
to March 31, 1997.
The following review concerns the three-month period ended March 31, 1997,
and March 31, 1996, which should be read in conjunction with the financial
statements and notes thereto presented in the 10-Q. Statements regarding future
economic performance contained within Managements Discussion and Analysis
of Financial condition and Results of Operations, constitute forward-looking
statements. Certain factors regarding the companys business, operations and
competitive environment which may cause actual results to vary materially from
these forward-looking statements accompany such statements.
Results of Operations
For the three-month periods ended March 31, 1997, and March 31, 1996.
Net sales for the three months ended March 31, 1997, were $18,357,000, an
increase of $4,975,000, or 37%, over the same period in 1996. The Company
believes the continued growth in net sales for the three months ended March
31, 1997, was a direct result of the Companys ability to expand sales through
larger and more frequent customer acquisition mailings, advertisements in
magazines and newspapers, and through the nationwide trend towards
preventive health care as a viable alternative to traditional medical
treatment. A portion of the increase in net sales is attributable to
improvements in customer segmentation mailing programs within the existing
customer base. Such mailings have generated positive sales response
rates on smaller and more targeted mailings to existing customers.
The Company intends to continue to implement new customer acquisition programs
through mailings, telemarketing, print advertisements, direct response
television, field sales representatives and expanded retail distribution
programs. The Company plans to add 75 new products and approximately
115,000 new customers through these scheduled marketing programs in 1997.
However, difficulties or delays in the development, production, testing
and marketing of products, including a failure to ship new products when
anticipated, failure of customers to accept these products, and a failure of
manufacturing economies to develop when planned may reduce the number of new
products introduced.
Cost of products increased to $7,683,000 for the first three months of 1997,
compared to $5,940,000 for the same period in 1996. As a percentage of net
sales, cost of products decreased by 2% over the same period in the prior
year due to continued reductions in product costs from in-house manufacturing
and lower product prices through volume discounts and expanded direct
sourcing of raw materials.
<PAGE>
Cost of mailings increased to $3,441,000 for the first three months of 1997,
compared to $2,883,000 for the same period in 1996. As a percentage of net
sales, cost of mailings decreased by 3% over the same period in the prior
year due to the decreased use of customer acquisition mailings. These
mailings are more expensive due to increased costs associated with
acquiring each new customer. Such mailings typically have lower response rates
than mailings to existing customers. The increased use of alternative customer
acquisition strategies during the three months ended March 31, 1997, compared
to the same period in 1996, proved to be successful, leading to the overall
3% decrease as a percentage of net sales. However, until alternative customer
acquisition strategies continue to prove successful, cost of mailings as a
percentage of sales may be higher due to the lack of experience regarding
these strategies and the continued reliance of the Companys direct mail
efforts for customer acquisition.
During the three months ended March 31, 1997, selling, general and
administrative expenses ("SG&A") increased by $1,486,000 or 44% to $4,870,000
in 1997 from the same period in 1996. This significant increase in SG&A was
due to market development costs of $378,000 by Natrix International, the
Companys majority-owned subsidiary. Further increases were due primarily to
the Companys sales growth, which necessitated additional staffing of
approximately $857,000 and substantial increases in product marketing and
development expenses of approximately $251,000 in 1997. SG&A as a percentage
of net sales increased by 2% over the same period in 1996 to 27% for the
three months ended March 31, 1997.
In the three months ended March 31, 1997, net income increased by $711,000
(77%) to $1,634,000 compared to net income of $923,000 for the three months
ended March 31, 1996. Overall, the growth in net income for the quarter
ended March 31, 1997, was due to increased sales, cost control efforts and
lower product costs from in-house manufacturing and lower raw material prices
during a period of significant expenditures on market development in
the Company's newer retail product lines.
Liquidity and Capital Resources
The Company generated $1,678,000 and $441,000 in cash from operating
activities during the three months ended March 31, 1997 and 1996, respectively.
The increase in cash from operating activities of $1,236,000 during the
three months ended March 31, 1997, as compared to the same period in 1996
was due to the increase in product inventories by $3,437,000 in 1997 compared
to increases of $2,922,000 during 1996. This cash outflow was offset by net
income of $1,634,000, an increase of $711,000 from net income of $923,000
in 1996 and an increase of $2,289,000 in accounts payable from December 31,1996.
The increase in inventory and corresponding increase in accounts payable was
necessary to support continued sales growth and expanding product lines.
<PAGE>
Cash flows used by investing activities totaled $1,568,000 during the three
months ended March 31, 1997, versus $368,000 for the same period in 1996.
The continued use of cash in investing activities resulted from the
purchase of machinery and equipment for the Companys manufacturing facility
and computer equipment and software for a total cost of $1,946,000. The
ompany used $194,000 to purchase mailing lists and other intangible
assets. Finally, the Company generated $573,000 from sales of marketable
securities. The Company believes the cash invested in marketable securities
combined with its current working capital position will be adequate to meet
future operating needs. However, as significant expenses are incurred
for marketing distribution development, facility expansion and product
development, the Company may be required to seek additional funding.
Cash flows generated by financing activities totaled $230,000 as a result of
the exercise of stock options that were granted to directors and employees
during 1995, 1994, 1993 and 1992. Additionally, the Company used $2,187,000
to repurchase 111,800 shares of its stock according to a stock buy-bac
program authorized by the Board of Directors.
The Company accounts for marketable securities in accordance with Statements
of Financial Accounting Standards No. 115. Accordingly, these securities
are stated at fair value with unrealized gains and losses included as a
component of stockholders equity until realized. At March 31, 1997,
the Company recorded a marketable securities valuation allowance for an
unrealized loss of $194,000 as a component of stockholders equity. At
March 31, 1997, the Company recorded a valuation allowance equal to the
deferred tax effects of the marketable securities net unrealized loss as
management of the Company has not been able to determine that it is more likely
than not that the unrealized capital loss with be realized.
The Company has a $650,000 revolving line of credit agreement with a bank
which bears interest at 1% over the bank's prime lending rate and expires in
June, 1997. No amounts were outstanding at December 31, 1996 or March
31, 1997.
PART II OTHER INFORMATION
No other information is required to be included in response to Items 1-6
under Part II of this form 10-Q. No report on Form 8-K was filed during the
quarter ending March 31, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMRION, INC.
Date: May 12, 1997
by: /s/ Jeffrey S. Williams
Jeffrey S. Williams, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000812788
<NAME> Jeffrey S. Williams, CFO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 419,474
<SECURITIES> 6,346,183
<RECEIVABLES> 2,158,140
<ALLOWANCES> 26,000
<INVENTORY> 11,164,347
<CURRENT-ASSETS> 17,216,615
<PP&E> 6,981,397
<DEPRECIATION> 2,019,609
<TOTAL-ASSETS> 33,479,238
<CURRENT-LIABILITIES> 7,899,880
<BONDS> 0
0
0
<COMMON> 11,214,807
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,479,238
<SALES> 18,356,744
<TOTAL-REVENUES> 18,448,409
<CGS> 7,682,688
<TOTAL-COSTS> 11,124,121
<OTHER-EXPENSES> 4,870,416
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,453,872
<INCOME-TAX> 820,000
<INCOME-CONTINUING> 1,633,872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,633,872
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
